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Financial planners milk trillions of our dollars

Paul Sheehan

"The term 'financial adviser' is often a euphemism for an unqualified cowboy or a qualified bandit." Photo: Jim Rice

More than half a million Australians may have received shoddy advice from financial planners, many of whom have little training, according to reports by Fairfax Media.

Oh come on now, Fairfax! Get serious. That is preposterous. We know millions of Australians have been given shoddy financial advice, or paid for shoddy advice, or been gouged by high fees, or been gouged for shoddy advice.

Trillions of dollars are now sluicing around the superannuation, real estate and financial planning sectors of Australia. That means billions of dollars in fees can be plucked by go-betweens on the way through. This is a new era, and still a frontier. The term “financial adviser” is often a euphemism for an unqualified cowboy or a qualified bandit.

Before I share my own journey into the heart of financial advice darkness, let’s recap some big events of recent weeks:

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More than 400,000 current and former customers of the Commonwealth Bank of Australia have been invited to participate in a review of poor advice given by the bank’s financial advice divisions.

The Commonwealth Bank has paid million-dollar bonuses to the executives who ran its financial advice divisions despite these divisions being embroiled in scandal and incompetence. People whose finances have suffered because of these failures have described these lucrative payments as, among many other choice terms, “obscene”.

Macquarie Bank has been directed by the corporate regulator to contact 160,000 current and former clients of its Macquarie Private Wealth division to participate in a compensation scheme.

There are other ways to milk the trillions of dollars that flow through the hands of financial advisers, managers and planners. In the past week I’ve engaged in a surreal exchange with my own accountant. This year, my wife and I filed very similar and simple tax returns. My wife was charged $550 by her accountants. Not cheap. I was charged $2167. Absurd.

When I queried how a simple tax return could mutate into a $2167 bill I received this justification: ''There were travel expenses listed in the Westpac bank statement. We had to confirm if these were business-related. Paul responded that there were ‘no travel expenses’ to be claimed ... These had to be investigated to ensure Paul was not missing out in deductions he may have forgotten or over looked ... unfortunately the investigating and follow up took extra time and not reflected in the end result ...''

I responded: ''This does not help at all. I did not claim any travel expenses. I even expressly said so. Nor did I request ... all this is expensive make-work which was not required and not requested.''

The accountant responded: ''While we understand your concerns about the time spent on making sure that we have all the information necessary for completing the tax return, we are also bound by our professional standards as a Tax Agent to ensure that we have done all we could to clarify any issues we have identified ... Conversely had we ignored the possible claims based on the 'documents' you provided and they were genuine claims we would have been in breach of our duty of care. We are in a no win situation here!!!''

Notice the impregnable logic. I am charged four times more than my wife for a similar and simple tax return but the accountant claims they are obligated to engage in work which I did not need, did not request and did not yield any benefits – because I may be a vexatious litigator.

Not surprisingly, I am paying the bill but sacking the accounting firm.

But this experience pales compared with the contribution to my financial welfare by Westpac. In 2001, my wife and I were persuaded by two Westpac ''financial advisers'' (aka salesmen) to take out a loan against our mortgage to create a new wealth-creation stream by investing in equities in a tax-effective fund. That cost $3000.

The account was flipped to BT after Westpac acquired BT Financial Group in 2002. Under BT’s stewardship the fund has proved sensitive to bad market moves and impervious to good ones. After 13 years, it is down 18 per cent. Instead of creating wealth we have created a net debt position to Westpac. At the time the loadfund was established, the benchmark ASX index was just over 3000. As of Wednesday it was 5625.

In summary: since the fund was set up the Australian stockmarket has risen 81 per cent and our Westpac fund has fallen 18 per cent. It is worth half what it would have been had it simply been invested in an index fund, which requires zero skill.

I’d like to say that was the only problem but a revolving door of Westpac ''Relationship Managers'' (aka salespeople) have declined, one after another, to explain this failure or do anything about it. Thank god I ignored Westpac and my accountant’s importations to manage my super fund. Instead I stayed with a big super manager and it has done very well.

I would like to think I was just unlucky in having a dud and a gouger out of three financial managers, but I think I’m one of millions who have been plucked on the frontier of the great financial advice gold rush.

64 comments so far

I also had the pleasure of letting west pac, then BT, manage some of money. Lost 60% of it.

The entire industry are parasites.

Commenter

lost

Location

dollars

Date and time

August 21, 2014, 10:54AM

Not correct. You and Paul Sheehan were shafted because you went to a vertically integrated institution (aligned to a bank or insurance company) There are plenty of INDEPENDENT planners who do a great job and put their clients first. Putting all your money in an index fund is not the answer, Paul. Can't wait for you guys to differentiate the independent businesses which, by the way are being driven out of business by a mountain of FoFA regulation.

Commenter

Bang Bang

Date and time

August 21, 2014, 1:20PM

Sure thing Bang Bang, let's make it correct for you.

95% of the industry are parasites. Don't make anything, don't grow anything, don't fix anything.... they just feed of their hosts (us).

Commenter

lost

Location

dollars

Date and time

August 21, 2014, 2:40PM

Don't forget the "mere" 0.3% "advice" cost deducted as part of your super fees in the large fund managers (who manage 60% of the industry). Which I never use (nor would).

And thanks to the govts FOFA cancellation, you can no longer opt out of it, or escape it with new funds.

e.g. for a $ 100k fund that would be $ 300 a year for nothing (for 40 years...) . A weekend away for the financial planner for each customer. Nice work if you can get it.

Commenter

Govt supported super advice ripoffs

Date and time

August 21, 2014, 3:21PM

@lost, you were correct the first time - "Don't make anything, don't grow anything, don't fix anything", they are all parasites of whom the occasional one provides a benefit to its host (collateral damage as far as they are concerned, I suspect!)

Commenter

jumpingjacques

Location

Cumberland Oval (in my dreams)

Date and time

August 21, 2014, 3:48PM

Bang Bang , your liberal biased drivel is really a small marginalised hollow scream outweighed by the despair of financial victims that number in their thousands. What's worse is that there are many more thousands undeclared financial victims in Australia.To stick up for independent businesses is a disgusting diversion of what is going on in Australia, that businesses like the Commonwealth Bank are not being held accountable by an independent body in their disgraceful siphoning of unsuspecting average Australian 's accumulated nest eggs. Don't allude that independent businesses are any different, because from personal experience I found that the industry is despicable across the whole spectrum , large or small.

Commenter

favela liberal

Date and time

August 21, 2014, 6:22PM

And guess what? Not only has the banking sector milked you and just about everyone else, the latest budget does a good job of protecting their ill gotten gains whereas many of their now poorer clients will get slugged.

Commenter

Marg

Date and time

August 21, 2014, 10:56AM

absolutely marg.......and the gov privatisations will only increase their profit margins at the expense of poorer in society history says..

Commenter

kora

Date and time

August 21, 2014, 1:51PM

May we assume Paul that you therefore support the original FOFA rules requiring financial advisors to act in their clients' best interests? Lack of regulation not working so well?